Robert Smart believes pensions actions need re-evaluation

Members of pension funds who believe their trustees may be guilty of misconduct will not get justice. Anecdotal evidence suggests there are a number of instances where pension fund trustees are not being brought to book.

The grievous problem that members face is how to finance an action against their trustees and possibly their employers.

In McDonald v Horn, the Court of Appeal confirmed that members can be indemnified from the fund against past and future costs of suing alleged wrong-doers and, what is more, get payments on account. But it is very expensive to obtain such an order.

The direct ancestor of the McDonald Order was the costs order made in Wallersteiner v Moir [1975], another derivative action in which a company was ordered to indemnify a shareholder who sued a wrongdoer director on its behalf.

In both Wallersteiner and McDonald, the Court of Appeal envisaged that the costs incurred incurred to obtain a pre-emptive costs order would be limited. However, litigation against pension fund trustees is complex.

Legal aid is not available to the dissatisfied pension fund member and unions have generally backed off financial commitment in this area.

Lawyers should be permitted to conduct McDonald-type litigation on the basis of a full-blooded US-style contingent fee agreement and the Law Society ought to be prepared to grant the necessary waivers. The reward for such a risk would have to be far more than the 100 per cent uplift shortly to be permitted in certain litigation where a conditional fee is agreed under Section 58 of the Courts and Legal Services Act 1990.

Radical? Arguably. Novel? No. Nineteen years ago, Lord Denning in Wallersteiner said he would permit Moir to engage his lawyers on exactly that basis. However, Lord Justices Buckley and Scarman disagreed. I suggest now is the time to re-evaluate Lord Denning's proposal.

Robert Smart is a litigation partner of Dibb Lupton Broomhead.